Millard “Mickey” Drexler may have just fired the starting gun for anew and potentially transformative round of industry dealmaking.
By joining with private equity firms TPG Capital and Leonard Green& Partners in a $3 billion buyout of J. Crew Group Inc., Drexler isalso readying the company for expansion and giving its new concepts likeMadewell and Crewcuts a chance to mature away from Wall Streetscrutiny.
Under terms of the deal signed Tuesday, Drexler willremain chairman and chief executive officer and keep his equity stake inthe business, which is currently 5.4 percent. Stockholders will be paid$43.50 a share — a 15.5 percent premium over Monday’s closing price butstill below the more than $50 the stock sold for in April.
Investors pushed up J. Crew shares 16.8 percent Tuesday to $43.99, asthe S&P Retail Index slipped 0.8 percent, or 3.74 points, to 484.47,and the Dow Jones Industrial Average, conscious of European debtconcerns and new hostilities on the Korean peninsula, fell 1.3 percent,or 142.21 points, to 11,036.37.
The retailer will consider otheroffers until Jan. 15. If nothing better materializes and shareholdersgive the thumbs-up, the deal, which was first reported by The New YorkTimes, is expected to close in the first half.
“We are in thisfor the long term, and we do what we do day in and day out so we candeliver the best possible products to our customers,” Drexler saidTuesday.
Private equity firms flush with cash have been circlingretail properties, which were forced to get leaner because of therecession and are inviting acquisition targets because of relatively lowstock prices.
“This is the start of the trend we’ve all beenwaiting for,” said David Bassuk, managing director at AlixPartners’retail practice. “The news has always been, the private equity playersare swirling around, watching what’s going on. This is the story of themputting their money to work.”
The holiday season could singleout the best retail opportunities and lead to a “very active” round ofmergers and acquisitions in the first quarter, Bassuk said.
“Youwill see more retail deals in the $1 billion to $3 billion range,” saidDavid Shiffman, investment banker and managing director at MillerBuckfire & Co. “At that size range, large-cap and midcap [privateequity] firms can put significant capital to work. In addition,strategic acquirers are building large cash balances and will useM&A for growth.”
The economic downturn set the stage fordeals that are now coming to fruition. In addition to J. Crew’s pendingbuyout, Bain Capital Partners completed its $1.8 billion acquisition ofThe Gymboree Corp., which closed Tuesday.
“We’re going into 2011with some tailwinds,” said Arash Farin, an investment banker at TheSage Group, noting overall holiday sales are expected to rise modestly.“There’s a lot of private equity money that is looking for new deals.”
The M&A machinery virtually shut down for a time during the depthsof the recession and money piled up, leaving some private equity firmsto choose between spending it or giving it back to their investors.McKinsey & Co. estimated private equity firms have about $100billion to spend on retail.
Faced with consumer apathy becauseof the recession, retailers found religion of sorts and cut costs andinventories, becoming the tight operating machines they always claimedto be.
But something more fundamental might also be going on.
Marc Cooper, managing director at Peter J. Solomon Co., said J. Crew isa bit of an outlier in that it is a sizable retailer with “someinteresting growth potential.” Other established retailers that couldget taken private are becoming “cash generators” with fewer prospectsfor growth, he said.
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
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“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia